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Updated: December 12, 2024
Buying a first home can be a big financial commitment, and many first-time homebuyers rely on the generosity of friends and family to help cover costs like the down payment and closing fees.
When loved ones contribute funds for a home purchase, lenders require clear documentation to confirm that the money is a gift, not a loan.
This is where a mortgage gift letter comes in.
A mortgage gift letter is a simple but essential document that assures lenders the funds you received are a gift, with no repayment expected.
In this guide, we’ll cover everything you need to know about mortgage gift letters including how to write a gift letter and the cash gift requirements based on loan type.
A mortgage gift letter is a signed document from a donor, certifying that the down payment gift funds are provided with no expectation of repayment.
Gifts from friends and family are common ways to help cover home buying expenses like the down payment and closing costs. Mortgage lenders need assurance that these gifts are not loans, as additional debt could impact mortgage approval.
The mortgage gift letter serves as a straightforward way to confirm that gift funds are not required to be repaid.
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A mortgage gift letter must contain certain details, including the donor’s name and contact information, the gift amount, and specifics about the property being purchased. The letter is written and signed by the donor, though many mortgage lenders provide templates to make the process easier.
A mortgage gift letter typically includes the following information:
Once the mortgage gift letter is complete, the homebuyer can submit the letter to their mortgage lender as part of the loan documentation process. There is no need for notarization.
If a mortgage lender does not provide a template for a mortgage gift letter, it is easy to create one by customizing the example below:
| To: [Name/Address of Lender] I/We, [DONOR NAMES], certify that our gift of $[GIFT AMOUNT] to [BUYER] is given without any expectation of repayment, implied or otherwise. Our gift of $[GIFT AMOUNT] is to be applied toward the purchase of:
[HOUSE ADDRESS] | |
| Money Given By: Name: [DONOR NAME] Relationship To Buyer: [RELATIONSHIP] Phone: [PHONE NUMBER] Address: [DONOR ADDRESS] | Money Received By: Name: [BUYER NAME] Phone: [PHONE NUMBER] Address: [DONOR ADDRESS] |
| Source of Gift Funds: Bank: [BANK NAME] Account Type: [CHECKING/SAVINGS] Account Number: [ACCOUNT NUMBER] Deposited: [DATE DEPOSITED] Buyer’s Signature: _______________________________ Date: __________ Donor’s Signature: _______________________________ Date: __________ *Upon signing this gift letter, we certify that funds given to the home buyer were not made available by any persons or entities with interests in the sale of the above property, including the seller, real estate agent, lender, or other parties involved in the transaction. | |
When planning a home buying timeline, ask donors to provide a mortgage gift letter after the offer is accepted and before closing on the home.
Once the letter is signed by both the donor and the homebuyer, it can be submitted to the mortgage lender as documentation.
Mortgage gift rules vary depending on the type of loan being used to purchase the home. For single-family homes, gift funds can be used for a down payment, but the relationship between the donor and the buyer matters.
Conventional loans are commonly used by first-time buyers, and gift donors must be related to the homebuyer.
Family members eligible to give mortgage gifts include:
Friends and other parties who are not related to the buyer cannot donate gift funds for conventional loans.
With FHA loans, donors are not limited to family members. Those eligible to give mortgage gifts include:
Extended family members, such as cousins, nieces, and nephews, cannot contribute to FHA loan down payments.
USDA loans and VA loans are the most flexible regarding gift funds. These loans do not restrict gift donors based on their relationship to the homebuyer.
However, those involved in the sale of the property, such as the seller, real estate agents, and the lender, are prohibited from contributing to the gift funds.
Both USDA and VA loans offer 100 percent financing, allowing homebuyers to use gift funds to cover closing costs rather than a down payment.
Most first-time buyers can use gift money to cover their entire down payment when purchasing a single-family home. However, certain property types have specific rules for buyer contributions:
When buying a first home, saving thousands for a down payment may not be necessary with mortgage gift funds or down payment assistance.
Still have questions? Here are some common concerns about mortgage gift letters.
Homebuyers do not pay taxes on mortgage gifts, nor do they need to report the gift money to the IRS.
If a donor gives more than $18,000 in 2024, they are responsible for reporting the donation to the IRS. It’s recommended to contact a tax advisor for more information.
There is no maximum limit on the amount of gift money that can be received for a mortgage down payment. Donors are free to contribute any amount, and the funds can also be applied toward closing costs.
Donation limits imposed by the IRS only affect when a donor must report the gift, not how much can be contributed to the mortgage down payment.
No, notarization is not required for a mortgage gift letter. The letter should include key details about the donor, the buyer, and the gift amount, including:
The mortgage lender can verify the gift through the buyer’s bank statements.
Receiving a mortgage gift is a generous way for friends and family to support a first-time home purchase. With adequate support, many buyers are able to cover their down payment or closing costs without personal financial strain.
A mortgage gift letter certifies that the gift money does not have to be repaid, allowing the lender to provide an accurate mortgage offer without concerns about additional debt.
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